Your Plan for the 529 Plan

529 planThe $5 million exemption from federal estate tax eliminates the need for many to do complex estate planning. Because the exemption amount is indexed for inflation, a married couple’s assets must exceed $10,680,000, before estate tax would apply, and then only at the second of their deaths.

Before recent changes to the federal estate tax exemption amount (i.e., $5 million per taxpayer, as indexed for inflation), taxpayers were encouraged to make lifetime gifts to reduce their federal estate tax. This was especially the case when the exemption was $1 million per taxpayer with top 55% rate on any amount over that. Now, however, the common advice is for all but the über wealthy to retain their assets to ensure there is enough to live on during their lifetime. According to a recent National Law Review article, titled "529 Plans: Estate Tax and Income Tax Advantages," a second benefit of passing assets at death is that the recipient of the assets obtains a "step up" in the assets' basis to fair market value—avoiding income tax on the sale.

The original article advises that gifting is appropriate for tax purposes for grandparents and parents wanting to save for escalating college tuition. Contributions to 529's are treated as gifts for tax purposes, and they qualify for the $14,000 annual gift tax exclusion. Another benefit is that these contributions can be "pre-funded" for five years. This means that $70,000 per parent (or $140,000 for a married couple) can be removed from the donor’s estate more quickly than annual contributions. Remember, though, that the donor must survive the five years, or some of that gift with be placed back in the taxable estate.

The investment grows tax-free as far as federal income taxes, and the distributions to pay for the beneficiary's college costs also are not taxed. State law, however, may impact the state income tax liability.

Other advantages to a 529 plan include the donor's control of the funds. In a custodial account, the recipient receives the funds at 18 or 21, and other gift strategies give up control to get an estate tax exclusion.

The only real disadvantage for 529’s is if you are applying for financial aid, as the 529 may be deemed an asset. 529 plans can still be a sound choice from the perspective of both estate tax exclusion and income tax reduction without a great deal of expense or time. Even so, talk to an estate planning attorney and get sound advice on where to go to set up the best 529 for your child and to implement the best strategies for your education situation.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: The National Law Review (September 8, 2014) "529 Plans: Estate Tax and Income Tax Advantages"


Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.